09/24/2006
VOLUME 256
Companies featured in the current edition of the newsletter: ADSX, ARSC, ASPN, CLRI, CPPT, CYTR, EEEI, EMIS, ENZ, GNBT, HMWM, HSOA, HYTM, IMMG, ISON, ITRO, LEVP, NTRN, QTXB, RGEN, RTK, SFP, SLS, SOG
After three weeks of robust gains, the market took a breather, as fears of rising inflation were trumped by concerns about a slowing economy, after the Philly Fed report on manufacturing activity in the region showed a negative result, much to the surprise of investors. As a result, the Dow dropped 52 points decreasing its year to date gain to 7.4%, while the Nasdaq was down 16 points lowering its year to date gain to 0.6%. The Russell 2000 shed 10 points and reduced its year to date gain to 6.7%, while the S&P 500 was down 5 points decreasing its year to date gain to 6.7%.
Reflecting the fact that inflation remains under control, the Federal Reserve’s announcement to leave interest rates unchanged generated little surprise and allowed investors to continue their debate on whether Bernanke & Company were effecting a soft landing. Certainly, the economy received a boost from another decline in the price of crude oil, helping to offset warnings from Yahoo! (NASDAQ: YHOO) and Boston Scientific (NYSE: BSX), among the few high-profile companies to warn of an earnings shortfall, although activity in that area should increase as the third quarter comes to an end this week.
What should investors look for in the upcoming week? Next week will be a slow one for earnings announcements. Walgreen Co. (NYSE: WAG) will report results before the bell on Monday. Earnings from home builder Lennar (NYSE: LEN) will be released pre-market on Tuesday morning, and should further refine views of investors on the strength in the housing sector. Jabil Circuit (NYSE: JBL) posts profits after the market close on Tuesday. Family Dollar Stores (NYSE: FDO) issues results on Thursday before the open and Accenture Ltd. (NYSE: ACN) reports that day after the close.
The conference schedule will be active again this week, beginning with UBS hosting a four-day Global Life Sciences Conference beginning Monday in New York City. CytRx Corporation (NASDAQ: CYTR), will present initial findings from data analysis of the company’s Phase IIa clinical trial with arimoclomol for the treatment of ALS at the event on Tuesday morning. Emisphere Technologies (NASDAQ: EMIS) will present on Tuesday afternoon, while Hythiam, Inc. (NASDAQ: HYTM) will present on Thursday morning. The 11th annual JP Morgan Asia Pacific Conference will be held in New York the same day. Merrill Lynch Global Power and Gas Leaders hosts a conference in New York City on Tuesday. The four-day Prudential Equity Group Electrical Equipment & Consumer Electrical conference in Mt. Snow, Vermont also begins that day, as well as Thomas Weisel Partners hosting its second annual Consumer Conference in New York. Clearant, Inc. (OTCBB: CLRI) will present at the Noble Financial Small Cap Conference on Tuesday in Charlotte, North Carolina. Home Solutions of America, Inc. (NASDAQ: HSOA) will present at the NYSSA Construction Materials Conference in New York City on Tuesday.
Economic news for this week will likely center on the stability of the economy and the housing market, putting less focus on inflation. August Existing Home sales will be announced Monday morning shortly after the open of the market. The September Consumer Confidence reports will be announced mid-morning on Tuesday. Announcements pick up on Wednesday with August Durable Orders reported before the bell. August New Homes Sales will be announced mid-morning Wednesday followed by weekly Crude Inventories. The Q2 GDP & Chain Deflator report will be announced before the open on Thursday as well as weekly initial unemployment claims and the August Help-Wanted Index. August Personal spending and Personal income reports will be released Friday morning before the bell and the Chicago PMI and the September Michigan Sentiment will be announced shortly after the open.
Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, announced that the PROMETA protocols have been licensed for use at St. John Health’s Brighton Hospital, a historic facility founded by Harry Henderson, a colleague of Dr. Bill Wilson, the co-founder of Alcoholics Anonymous, and solely dedicated to the treatment of addictive disorders. Located in Brighton, Michigan, Brighton Hospital is one of nine hospitals and 125 medical facilities that are a part of St. John Health, a major provider of healthcare in southeastern Michigan. Both inpatient and outpatient treatment models are employed at Brighton Hospital, which is staffed by addiction medicine physicians and addiction-credentialed clinicians. Perhaps just as significantly, the stock closed above its 200-day moving average for the first time since late June. The stock ended the week up 71 cents at $7.06, also its highest level since June. Note that short interest is approximately 30% of the float and the company’s stock continues to be listed on the Reg SHO Threshold Security List, suggesting that it is hard to borrow.
Shares of biotech company CytRx Corporation NASDAQ: CYTR) surged 20.8% last week on three times average volume after the company surprised investors by saying that it would present initial findings from its Phase IIa clinical trial with arimoclomol for the treatment of amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease) on Tuesday. While the trial is designed to only measure safety and dosage levels, if the company is able to say anything about efficacy it could significantly impact the stock. With no viable solution for ALS today, any kind of efficacy would likely generate significant interest from the ALS community. Note that the company recently sold a 1% interest in any royalties the drug generates for $24.5 million, in a deal which would value the drug at approximately $2.45 billion. Shares ended the week at $1.74, up 30 cents.
Enzo Biochem, Inc. (NYSE: ENZ), a developer of innovative health care products based on molecular biology and genetic engineering techniques, announced that the company settled a lawsuit with Sigma-Aldrich Corp for an undisclosed sum. Sigma was the defendant in a suit brought by Enzo alleging, among other things, breach of contract and infringement of patents related to the Company’s proprietary labeled nucleotide technology. According to a filing with the Securities and Exchange Commission, Enzo alleged in the 2002 lawsuit that Sigma breached two distributorship agreements, violated trademark rights and infringed upon various patents. Although Sigma sold a nominal amount of product which violated ENZ’s patent position, of far greater significance is that Sigma is the first to settle, among other defendants include Affymetrix Inc., Roche Diagnostics, Amersham Biosciences, Inc., Perkin Elmer, Inc., Orchid Biosciences, Inc. and Molecular Probes, Inc., which likely have substantially greater liability. The stock ended the week down 20 cents at $12.65.
Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, announced last week that the company has deployed its VeriMed System in 18 emergency departments in New Jersey and New York, staffed by Emergency Medical Associates (EMA), a nationally-recognized, state-of-the-art emergency physician group. The VeriMed System, which consists of hand-held radio frequency identification (RFID) scanner, an implantable RFID microchip, and a secure patient database, is being used to help quickly identify and provide access to important health information on participating patients who arrive at the emergency department unconscious or unable to communicate. Over 150 hospitals have registered to use the VeriMed System, but EMA is the first emergency physician group in the United States to have the equipment available in all 18 of its contract hospitals. The company also announced that the State of Florida, through the Florida Emergency Mortuary Operations Response System and the State of Hawaii Department of Health, have both purchased the VeriTrace system for disaster relief and emergency management needs. The VeriTrace system was created in the immediate aftermath of Hurricane Katrina and proved extremely helpful in identifying, tracking and accounting for the remains of victims from the hurricane. VeriTrace is designed to assist state and federal agencies to plan for and manage emergency situations and disaster recovery using implantable RFID technology. Shares ended the week at $1.58, down 9 cents.
Volume Alert: Shares of Home Solutions of America (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services, surged 14.8% last week on more than twice average volume, likely aided by short covering. Perhaps more significantly, the stock closed above its 50-day moving average for the first time since May. Shares ended the week at $5.74, up 74 cents.
Generex Biotechnology Corporation (NASDAQ: GNBT), a leader in the area of buccal drug delivery, announced last week that Cardinal Health will distribute the company’s new Glucose RapidSpray™ product throughout the United States. Glucose RapidSpray, an innovative alternative for people who require or want additional glucose in their diet, is expected to be available in stores next month. The new spray system delivers a fat-free, low-calorie glucose formulation that was developed using the company’s proprietary buccal drug delivery technologies. Glucose RapidSpray delivers glucose directly into the mouth and the proprietary formulation is quickly absorbed into the blood stream. This system is simple to carry and use, with no large tablets to chew or messy gels to swallow. Generex also recently announced that two internationally renowned diabetes investigators from the Department of Endocrinology and Diabetes at University Campus Bio-Medico, Rome, Italy, made a podium presentation of the results of a research project sponsored by Antigen Express, Inc., a wholly owned subsidiary of the company, at the 42nd Annual Meeting of the European Association for the Study of Diabetes in Copenhagen, Denmark, on September 17, 2006. The investigators described the potential of the Antigen Express technologies to more sensitively and accurately diagnose patients with Type 1 diabetes which could lead to the identification of subjects at high risk for the disease. Type 1 diabetes, which occurs in children and young adults, is frequently associated with an autoimmune response to insulin. The stock ended the week up 8 cents at $1.50.
Isonics Corporation (NASDAQ: ISON), a developer of innovative solutions for the homeland security and semiconductor markets, said last week that it was named to Deloitte & Touche USA LLP’s 2006 Colorado Technology Fast 50, honoring the 50 fastest growing technology companies located in Colorado. Isonics was also nominated for consideration in the Technology Fast 500, which honors the fastest 500 growing technology companies in North America. The stock ended the week at $0.84, down 5 cents.
Rentech Inc. (AMEX: RTK), a developer of alternative energy sources, recently commented on the landmark test flight by the Air Force of a B-52 utilizing Fischer-Tropsch (FT) fuels at Edwards Air Force Base. The company believes that this is an important step in the development of the coal-to-liquids clean synthetic fuels industry for the United States and the U.S. military. The Military said that it wants to implement the use of FT fuels made from coal mined in the U.S. Based upon the discussions Rentech has had with the Department of Defense (DOD), Rentech believes that its FT technology represents an attractive alternative to traditional sources of jet fuel. Recently the president and CEO of Rentech, provided testimony before the DOD on the role that Rentech’s technology can play in developing an alternative clean source of energy for jet fuel. This Denver-based outfit owns and licenses a proprietary and patented version of the FT method. Invented in the 1920s in Germany, the Fischer-Tropsch method converts coal, natural gas or biomass (woodchips, etc.) into synthesis gas, a combination of hydrogen and carbon dioxide, and then converts that gas into a liquid fuel. It was used by Germany and Japan during World War II to produce synthetic fuels. The stock ended the week down 7 cents at $4.57.
SLS International (AMEX: SLS), the leading provider of premium quality sound systems for professional, cinema and home entertainment markets, reported that strong sales of cinema and professional lines led to record revenue for the months of July and August and helped drive margin improvement. SLS had unaudited gross revenue for the 2006 two-month period of $935,532, compared to $853,243 for the same period in fiscal 2005. For the month of August, 2006, SLS generated gross revenue of $615,151, which was the highest monthly revenue the company has generated, excluding months when it shipped the Q-Line System to Best Buy. SLS had a backlog at the end of the August, 2006 of $385,000. Shares ended the week unchanged at 27 cents.
Earnings Preview: Small appliance maker Salton, Inc. (NYSE: SFP) is scheduled to report fourth quarter and year-end results for the period ended September, 2006. There should be few surprises in the company’s report, as the summer months typically are a slower time period for the industry. Investors are likely to pay attention to what the company says about prospects for the upcoming holiday season, including the launch of a new proprietary technology enabling Salton to manufacture and market a line of indoor and / or outdoor portable grills which utilize a hydrogen flame in combination with electric heat to provide a new dimension to barbequing. The company said previously that there was substantial interest in that product as well as other new products at the Housewares Show earlier this year. Shares ended the week at $2.30, unchanged.
Volume Alert: Shares of Lev Pharmaceuticals, Inc. (OTCBB: LEVP), a developer of therapeutics for inflammatory diseases, surged 36% on more than 5 times average volume, after Kos Pharmaceuticals said that while one Phase III clinical trial for its drug candidate Icatibant was successful, another Phase III trial was inconclusive. Kos has been testing the drug for the treatment of a rare inflammatory disorder known as hereditary angioedema, or HAE. Despite the setback, Kos said it and European partner Jerini AG plan to begin submitting their application for approval to the Food and Drug Administration by the end of the year. Jerini also plans to ask the FDA for an expedited review, meaning the drug could be launched in 2007. The implications of the announcement are significant, as it means that LEVP, which is currently in Phase 3 testing, could be the first company with an approved drug on the market, which is estimated to be approximately $500 million. Shares ended the week up 17 cents closing at 91cents.
Neutron Enterprises, Inc. (OTCBB: NTRN), a developer of digital media solutions, announced that it has completed the sale of certain non-core assets from its signage business. The sale of the assets is expected to provide net proceeds in excess of $700,000 to Neutron. The sale paves the way for the creation of a new operating division that focuses on the high-growth web-based interactive marketplace. Shares ended the week down at $2.34, down 7 cents.
Junior oil and gas company Strategic Oil & Gas, Ltd. (TSXV: SOG), provided an update of its six well program on six separate prospects in the liquid-rich deep basin region of the Western Canadian sedimentary basin near the large scale, multi-zone oil and gas fields of Caroline, Pembina and Sylvan Lake, Alberta. The company also stated that it has successfully drilled and completed the first five wells of a six well program. The first two wells were completed as oil wells with uphole gas and were put on production in March and April 2006. Strategic Oil also successfully drilled and completed three gas wells. Pipeline and facilities are currently being installed and it is anticipated that all three wells will be in production around or on December 1, 2006. The success of this initial program has led to additional drilling locations on earned lands which are currently being evaluated for a fourth quarter drilling program. The stock ended down at $1.65, down 12 cents.
IMPART Media Group, Inc. (OTCBB: IMMG), an innovator in the creation of out-of-home digital advertising content and information network management, announced that the company has delivered its first 100 Impart IQ™ systems. Impart experienced huge market interest and industry acceptance, since the introduction of the Impart IQproduct at the Digital Retailing Expo in May 2006. Impart also recently unveiled Impart IQ Livewhich has generated interest among the hospitality industry, including hotels and restaurants. Impart will also be releasing Impart IQ Streams, next month and Impart IQ Ads, by year-end, further enhancing the features, functionality, and custom options available for the Impart IQ platform. Shares ended the week unchanged at 95 cents.
American Security Resources Corporation (OTCBB: ARSC), a holding company that acquires and develops technologies that will advance the development of alternative energies, announced that it has executed a Letter of Intent to acquire The Maria Group Inc., which holds exclusive rights to the patented Noble Wind Turbine, for17.5 million shares of its restricted common stock. The transaction is expected to close before year-end. The Noble Wind Turbine is a vertical axis wind turbine that has significant advantages over conventional wind turbine designs including lower initial and operating costs, higher operating altitudes, an enlarged operational envelope, and a design that is benign with respect to flying animals. The stock ended the week up a penny from last week at 10 cents.
Junior energy company Aspen Exploration Corporation (OTCBB: ASPN) said last week it completed a successful flow test on a recently drilled gas well in the Sacramento Valley gas province of northern California. The completion rig has now completed 3 consecutive wells and is moving to commence the initial completion work on three additional wells which Aspen drilled over the past few months. Aspen also announced that the junior energy company will be participating in the drilling of two additional wells (one operated and one non-operated) in the Sacramento Valley in the near future. The stock ended the week down 20 cents at $3.64 as a result of a sharp decline in natural gas prices.
CompuPrint, Inc. (OTCBB: CPPT), an energy technology company that combines satellite-based technology with traditional exploration services, which does business through Terra Insight Corporation, its wholly owned subsidiary, announced last week that its proprietary STeP technology accurately predicted formation changes and the horizons at which hydrocarbons would be found in the Bellows #1 drilling project in South Texas and the Sage # 1 well in the White River Valley, Nevada. Notwithstanding the accuracy of STeP, the company has plugged and abandoned the Sage #1 Well in Nevada and has decided to plug and abandon the Bellows #1 well in Texas. Shares ended the week at down at 19 cents.
Diversified sports media company HumWare Media Corporation (OTC: HMWM), announced last week that the company is now delivering over 80,000 ads a day in restaurants, sports bars, casinos, taverns and retail stores in major metropolitan areas in 23 states with its Boondoggle Sports Network. Unlike traditional advertising mediums that can be costly and may never reach target customers, BSN provides advertisers the opportunity to affordably advertise within the confines of neighborhood establishments where their potential customers enjoy their leisure time. Putting advertisers in an attractive rotation of trivia, sports news and positive advertisers, BSN advertising has enhanced a businesses image and has yielded results traditional advertising can never achieve. No other advertising medium provides an advertiser with the opportunity to target prospects with the number of imprints as BSN. Shares ended the week up a penny at .09 cents.
On the Wires: American Security Resources Corporation (OTCBB: ARSC), a holding company that acquires and develops technologies that will advance the development of alternative energies, announced that real estate investor Alvie T. Merrill has joined its Board of Directors. Mr. Merrill is President of A.T. Merrill Business Consulting, a management consultant and investment banking firm. He is also Chairman of Merrill-Zurich Inc. a diversified real estate holding and consulting company. QuantRx Biomedical Corporation (OTCBB: QTXB), a medical technology company with leading edge products targeting worldwide health needs, recently announced the appointment of Dr. Arthur Hull Hayes, Jr. to the Company’s Board of Directors.Dr. Hayes is considered a leading authority on healthcare and medical technology issues and has applied his expertise for the creation and growth of significant public and private organizations. SLS International (AMEX: SLS) announced that the company has appointed Tom Tyson as Vice President of Sales and Engineering. Mr. Tyson was hired by SLS in February of 2005 as the head of Field Engineering and soon thereafter was assigned the duties of overseeing new product development. IMPART Media Group, Inc. (OTCBB: IMMG), an innovator in the creation of out-of-home digital advertising content and information network management, announced that the company’s Global Director of Digital Media, is scheduled to speak at the Power Signs 2006 conference in San Diego, California on September 25th-26th. Itronics, Inc. (OTCBB: ITRO), a “Creative Environmental Technology” company and a world technology leader in photochemical recycling, announced the company president will speak on “Silver and Fertilizer from Photo Wastes” on September 22 at the World’s Premiere Silver Investment Conference, The Silver Summit at Coeur d’Alene, Idaho.
SPECIAL SITUATIONS:
ELECTRO ENERGY, INC. (NASDAQ: EEEI) $1.78
With the high prices of energy these days, especially at the pumps, is the next generation of technology in battery power? Electro Energy, Inc., a developer and manufacturer of advanced rechargeable batteries, believes so. The Connecticut-based energy company, founded in 1992, is rapidly making the concept of battery power as a viable source of energy a reality. With advancements in battery technology, the company currently holds eight U.S. patents and five foreign patents, with another three patent applications pending.
The company certainly has an excellent pedigree. Its Founder, Chairman and Chief Technologist, Martin G. Klein was one of the founding principals of Energy Research Corp., now known as Fuel Cell Energy (NASDAQ: FCEL). Fuel Cell, which had a market capitalization of more than $700 million earlier this year, was one of the first companies to make its mark in the battery power area. Klein’s relationships have likely played a role in the growth of EEEI, as it has undoubtedly helped the company forge strategic partnerships to help penetrate the large automotive, power tools and utilities companies. For example, in March, Electro Energy partnered with Altair Nanotechnologies to manufacture high-powered lithium ion batteries targeting hand help power tool makers and certain portable devices.
It also continues to maintain long-standing relationships with numerous U.S. Government agencies that are purchasers of Electro Energy’s batteries as well sources of significant research and development funding. During the second quarter, the company was awarded an $850,000 contract from the U.S. Army Communications and Electronics Command to develop BB2590-type lithium-ion batteries with 20-30% greater capacity than other currently available batteries of the same type.
EEEI’s targeted markets are the world’s fastest growing rechargeable battery markets. The global market for nickel-metal hydride batteries is estimated to be growing at a compound annual rate of 23.4%, rising from $1.6 billion in 2000 to $13.1 in 2010. The compound annual growth rate for lithium battery markets is estimated at 10.2%, rising from $1.9 billion in 2000 to $5 billion in 2010. EEEI’s patented bipolar nickel-metal hydride battery technology offers superior performance and lower cost than many other commercially available technologies.
EEEI’s President & CEO, Michael E. Reed, a 35-year veteran of the rechargeable battery industry with key roles at Delco Remy, Exide and Johnson Controls, joined the company in 2005 to accelerate commercialization of its advanced technology. The recent acquisition of major, high-volume, automated facilities near Gainesville, Florida supports the company’s product commercialization over the next 12-24 months.
The use of EEEI’s patented technology in automobile batteries received recognition from the New York Times in August of this year, with the article detailing the potential of the experimental batteries in specific test cars. Plug in technology has the potential to reduce approximately 50% of the vehicle’s energy consumption that comes from gasoline or equivalent fuels, but scientists admit that the battery technology is still not ready.
Electro Energy also launched its NiCd™-a 37 battery, built at its Colorado Springs facility, on board an observatory satellite built by the Korean Aerospace Research Institute. The Colorado Springs facility also supplies the Super Nickel Cadmium batteries for U.S. government satellite systems, and vented Super NiCd™ batteries for aircraft such as the B-52, B-1, Cobra Helicopters and some industrial products.
While revenue is still small, it has been growing. Consolidated net revenue for the second quarter ended June 30, 2006 rose 18.5% to $896,719 compared with $756,965 for the same quarter in 2005. For the six months ended June 30, 2006, revenue increased 10.3% to $1,993,279 from $1,807,279 for the same period in 2005. One of the catalysts for significant revenue growth is likely to come from the nationwide push for Hybrid Electric Vehicles and Plug-in Hybrid Electric Vehicles (PHEV) that began this Spring. Momentum has been growing for hybrid fuels, as reflected by the California Cars Initiative, a move to develop alternative forms of fuel for cars. As a result, the California group partnered with EEEI to develop a Toyota Prius as a prototype PHEV powered by EEEI’s bi-polar NiMH battery. The prototype vehicle was demonstrated at several high-profile events and received a significant amount of positive press attention. This positions EEEI well to participate in the infant hybrid electric vehicle and plug-in hybrid battery market that is projected to reach $1-2 billion in the short-term and possibly $30 billion long-term.
Momentum for the company’s products appears to be building with current customers as well. Recently, EEEI’s subsidiary Mobile Energy Products Inc. received a $410,000 order from EaglePicher Technologies, the world’s leading supplier of nickel hydrogen cells and batteries that power space satellites.
Many years ago hybrid vehicles were merely a vision of innovative engineers. Today, their use is common in Europe and is becoming more prevalent in North America. With gasoline prices still closer to $3 per gallon than $2, the demand for cost-effective transportation vehicles is likely to increase. With promising technology, a state-of-the-art manufacturing facility, and the benefit of an experienced management team poised to deliver growing revenue, Electro Energy could benefit. Based upon its current market capitalization (less than $50 million) which is just a fraction of where it was less than two years ago, the opportunity for investors could be intriguing.